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Treasury Notes

 Reflecting on the Auto Rescue Five Years Later

By: Tim Massad

When President Obama took office, America’s automobile industry was on the brink of collapse. The financial crisis had nearly frozen access to credit for vehicle loans and sales had plunged by 40 percent. Faced with that sober reality, the Obama Administration moved quickly to protect the broader economy by stabilizing the industry. These actions saved more than one million American jobs, according to independent estimates.

Last week, I travelled with the President to Ford’s Kansas City assembly plant where he reflected on the revival of the automobile industry, which is now profitable and creating jobs at the fastest pace in 15 years. In fact, since June 2009, when GM and Chrysler emerged from bankruptcy, over 340,000 jobs have been created. 

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Treasury exited its investment in Chrysler in 2011, recovering 90 percent of the taxpayer funds six years ahead of schedule, and expects to complete its exit from GM by the first quarter of 2014, subject to market conditions. Treasury announced last week that it has recouped more than 70% of the initial investment and reduced the taxpayer’s stake of GM stock from over 60% at the peak to only 7.3%.  And earlier today, Treasury announced that it will continue its sales of GM common stock by launching a third pre-defined written trading plan. Finally, Ally, formerly known as GMAC, recently announced that it will repay taxpayers an additional $6 billion, subject to Federal Reserve approval of a transaction announced in August.

While the auto industry rescue may end up as a net cost to the government, the cost of a disorderly liquidation to the families and businesses across the country that rely on the auto industry would have been far higher. Said Alan Mullaly, CEO of Ford Motor Company: 

"If GM and Chrysler would've gone into free-fall they could've taken the entire supply base into free-fall also, and taken the U.S. from a recession into a depression. That's why we testified on behalf of our competitors even though we clearly did not need precious taxpayer money."

While there is still more to work to be done, the decision to rescue the American auto industry helped the economy recover from the financial crisis and enabled the auto industry to come roaring back.   

Tim Massad is the Assistant Secretary for Financial Stability at the U.S. Department of the Treasury

Posted in:  Financial Stabilitiy
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